Macquarie eyes carbon pipeline, $30bn to spend
Macquarie wants to increase its involvement in the “massive pipeline” of renewable energy projects required globally.
Macquarie Group plans to increase its involvement in the “massive pipeline” of renewable energy projects required globally, help companies navigate the energy crisis and seize on acquisition opportunities, given its funds have $30bn to deploy.
After handing down a $2.3bn interim profit underpinned by customer hedging in gas and power markets, Macquarie chief executive Shemara Wikramanayake highlighted the accelerating shift to cleaner sources of energy by governments and companies.
“The opportunity is very, very early in terms of the climate response,” she said. “Look at hydrogen as a solution for baseload renewable energy, which we desperately need because wind and solar do have a big intermittent issue, or you look at batteries and the longevity of storage.
“We need solutions in so many different areas and each country has to prioritise where its glide path is going to focus.
“Australia is very focused at the moment on grid infrastructure as one of the areas.”
Ms Wikramanayake noted a “massive pipeline” of projects globally and highlighted two pieces of legislation in the US which would boost renewable investment by as much as $US470bn.
“That (pipeline) is getting government support to catalyse it in the developed and the developing world,” she said, noting Macquarie could move further into more complex areas, including offshore floating wind power, as more established renewable areas became increasingly crowded.
Despite the Federal Government in this week’s budget slicing funding for carbon-capture projects, Ms Wikramanayake reiterated her support for those types of projects.
“We’re not going to meet our net-zero targets without abatement solutions, so we have to take carbon out of the atmosphere,” she said.
While Macquarie operates in traditional energy markets, providing services such as trading and hedging, risk management, financing and logistics, it is also among the biggest managers of renewable energy. Globally, it has invested or arranged $65bn in green energy projects since 2010 across development, construction, operation or finance.
Ms Wikramanayake said that while Macquarie was conservatively positioned because of volatile markets and the increased risk of recession in some regions, she was adamant those conditions presented opportunities.
“We are sitting with good dry powder in the asset manager, $30bn,” she said. “What we do with all that capital is empower our teams on the ground to be ready to respond.”
Macquarie reported a capital surplus of $12.2bn on its balance sheet. The asset manager and investment bank saw a better-than-expected 13 per cent increase in profit to $2.3bn for the six months to September 30, compared with the same period a year earlier. It was buoyed by bumper levels of client hedging in volatile energy markets, but Macquarie stopped short of providing full-year earnings guidance.
The stock rallied as high as $173.20 on Friday morning, before reversing those gains to close 0.02 per cent lower at $166.50 as some analysts questioned the sustainability of the group’s earnings.
But Ausbil Investment Management executive chairman Paul Xiradis said he was upbeat on Macquarie’s prospects. “We believe Macquarie’s commodities business will continue to benefit from energy market volatility, driven not just by recent geopolitical and supply constraint issues but also the longer-term transition toward renewables,” he said. “Underlying client growth and hedging activity remains robust and will remain an earnings tailwind. Macquarie is poised to benefit from the structural tailwinds around decarbonisation.”
JPMorgan analysts said negatives in the Macquarie result included softer fee and commission income, partly due to lower merger and acquisition advisory fees.
Prior to Macquarie’s interim result analysts were expecting profit for the year to March 31 of about $4.3bn, down from last year’s $4.71bn record.
Macquarie declared a first-half dividend of $3 per share, which was up on last year’s interim payment of $2.72. The group’s annualised return on equity fell from 17.8 per cent to 15.6 per cent.
Net operating income was $8.6bn in the six months to September 30, up from $7.8bn. Operating expenses increased 11 per cent as Macquarie added staff and navigated higher wage costs.
The profit result was driven by Macquarie’s commodities and global markets unit, which saw its profit contribution climb 15 per cent in the period, compared to the first half last year.
That reflected a “strong risk management contribution” across the commodities platform, particularly the gas and power, resources and global oil businesses, as client activity rose.
While Macquarie didn’t provide headline guidance for group profits, it did change the divisional outlook. It upgraded expectations for the commodities and global markets unit and also expects an improved financial markets contribution.
Previously, Macquarie expected commodities income to be lower in 2023 and had guided for financial markets activity to provide a “consistent contribution” to income.
Macquarie’s assets under management rose 3 per cent to $795.6bn as at September 30 from the prior six months, and were up 8 per cent on a year earlier.
The asset management unit delivered a 28 per cent higher profit contribution in the first half versus last year, while the banking and financial services division’s profit contribution climbed 20 per cent.
But Macquarie’s investment banking arm’s profit contribution slumped 12 per cent as deal volumes slowed after a record year in 2021.
The divisional guidance downgraded expectations for Macquarie’s asset management arm.
For the investment banking unit, Macquarie said investment-related income for 2023 was expected to be “broadly in line” with the previous year, as increased revenue from growth in the principal finance credit portfolio was offset by lower revenue from selling assets. Previously Macquarie had flagged investment-related income from that division would be up for 2023.
In Australia, the local currency has depreciated against the US dollar as the Reserve Bank’s tightening cycle hasn’t kept pace with that of the Federal Reserve.
That will benefit Macquarie given 72 per cent of the group’s total income is derived from outside Australia.
Grand ambition for financial services
Macquarie Group has flagged plans for its banking and financial services unit to become a bigger force in the market, with the company making a range of investments to facilitate growth.
Banking and financial services boss Greg Ward on Friday told analysts Macquarie had big plans for the division.
“We’re not building for the business to be the current size we are trying to build and scale this business to be much, much bigger,” he said.
Mr Ward outlined Macquarie’s investment spend spanning digitisation, upgrading its wrap platform, regulatory compliance and boosting cyber and fraud defences.
Macquarie has been attempting to dent the major banks’ stranglehold on the deposit market with attractive at-call interest rates on accounts, and has also promised quick turnaround times on mortgage applications.
The earnings results showed the division’s deposits jumped 19 per cent to $116.7bn reflecting about 4.4 per cent market share, while the mortgage portfolio increased 13 per cent to $101bn. Funds on the platform dropped 6 per cent to $111.4bn, given market declines, while Macquarie’s car loan portfolio tumbled 24 per cent after the sale of its dealer finance unit.
Macquarie’s guidance highlighted a more positive outlook for the banking and financial services business, despite higher expenses to support growth. It noted a favourable climate for loan growth and net interest margins as rates rise.
But the division is also dealing with the bank being hit with an enforceable undertaking by the prudential regulator last year, that among other things forced the entity to hold $500m in additional capital and undertake a remediation program.
On Friday, finance chief Alex Harvey highlighted the importance of the work.
“The end result of that program is improved processes, improved systems, improved frameworks and plainly we think it will further strengthen the risk culture across the organisation,” he said.
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